Directors report 1 2. Statement of directors responsibilities 3. Report of the auditors 4

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1 CONTENTS Pages Directors report 1 2 Statement of directors responsibilities 3 Report of the auditors 4 Consolidated profit and loss account Technical account long term business 5 Non-technical account and statement of total recognised gains 6 Consolidated balance sheet 7 8 Statement of changes in equity 9 10 Consolidated cash flow statement 11 Accounting policies Notes to the financial statements 16 31

2 DIRECTORS REPORT The directors present their report and the audited financial statements for the year ended 31 December PRINCIPAL ACTIVITIES The company is licensed to carry on long term business of insurance under the Maltese Insurance Business Act, The group is also authorised to provide investment services in terms of the Investment Services Act, REVIEW OF THE BUSINESS The level of new business and the group's financial position remain satisfactory, and the directors expect that the present level of activity will be sustained in the foreseeable future. RESULTS AND DIVIDENDS The consolidated profit and loss account is set out on page 6. The directors paid an interim net dividend of 650,000 (1998: nil) and recommend the payment of a net final dividend of 450,000 (1998: 232,500). At the company s Annual General Meeting held on 12 April 2000 the shareholders resolved that the interim dividend of 650,000 shall be applied to an equivalent increase in the company s issued share capital. For this purpose they authorised the Board to issue 650,000 new shares with a nominal value of 1 each to be allotted pro-rata to existing shareholders and to be paid up from the interim dividend due to them. DIRECTORS The directors of the company who held office during the year were: J.F.X. Zahra B.A.(Hons)Econ., M.A.Econ. M.C.I.M., M.M.R.S. (Chairman) M.C. Grech (Deputy Chairman and C.E.O.) E. Ellul (appointed 29 November 1999) J.V. Gatt B.A. (Hons) Econ., A.C.I.B. R. Lenhard Dipl. Math E. Mizzi LL.D. (deceased 16 February 2000) N. Silby B.Sc., F.I.A. F. Xerri De Caro A.C.I.B. A. Mizzi (resigned 16 June 1999) Financial report for the year

3 DIRECTORS REPORT DIRECTORS - CONTINUED Dr. R. Camilleri LL.D. was appointed as director of the company on 18 February 2000 and resigned from his appointment on 29 February Mr. J. M. Rizzo A.C.I.I., A.I.D.P.M., A.M.I.A.P. was appointed in his stead on 29 February According to the company s Articles of Association those members or group of members holding at least 10% of the total voting rights have the right to appoint a director. Every member or group of members holding at least an additional 13% of the total voting rights are entitled to appoint an additional director for every 13% holding. Unless appointed for a longer or shorter period, or unless they resign or are earlier removed, directors hold office for a period of one year, provided that no appointment may be made for a period exceeding three years. ACTUARIES The company's approved actuary is Mr. Martin Muir, M.A., F.I.A., a partner of Watson Wyatt Partners. AUDITORS The auditors PricewaterhouseCoopers have intimated their willingness to continue in office. On behalf of the board J. F. X. Zahra M. C. Grech Chairman Deputy Chairman and C.E.O. Middle Sea House Floriana Malta 12 April

4 STATEMENT OF DIRECTORS RESPONSIBILITIES The directors are required by the Maltese Insurance Business Act, 1998 and the Maltese Companies Act, 1995 to prepare financial statements which give a true and fair view of the state of affairs of the company as at the end of each financial period and of the profit or loss for that period. In preparing the financial statements, the directors are responsible for ensuring that: - appropriate accounting policies have been consistently applied and supported by reasonable and prudent judgements and estimates; - the financial statements have been drawn up in accordance with International Accounting Standards; - the financial statements are prepared on the going concern basis unless it is inappropriate to presume that the company will continue in business as a going concern. The directors are also responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Maltese Insurance Business Act, 1998 and with the Maltese Companies Act, They are also responsible for ensuring that an appropriate system of internal control is in operation to provide them with reasonable assurance that the assets of the company are properly safeguarded and that fraud and other irregularities will be prevented or detected. Financial report for the year

5 REPORT OF THE AUDITORS To the Members of Middle Sea Valletta Life Assurance Company Limited. We have audited the financial statements on pages 5 to 31. As described in the statement of directors responsibilities on page 3, these financial statements are the responsibility of the company s directors. Our responsibility is to form an independent opinion, based on our audit, on these financial statements and to report our opinion to you. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the financial statements give a true and fair view of the state of affairs of the company and the group as at 31 December 1999 and of the profit, the changes in equity and the cash flows for the year then ended in accordance with International Accounting Standards and have been properly prepared in accordance with the Maltese Insurance Business Act, 1998 and the Maltese Companies Act, Merchants Street Valletta Malta 12 April

6 CONSOLIDATED PROFIT AND LOSS ACCOUNT Technical account long term business & Company Notes Earned premiums, net of reinsurance Gross premiums written 1 13,466,063 9,645,185 Outward reinsurance premiums (445,856) (380,618) 13,020,207 9,264,567 Investment income 2 2,660,303 1,758,820 Unrealised gains on investments 2 4,778,861 1,969,113 Other technical income, net of reinsurance 2,041 1,764 Total technical income 20,461,412 12,994,264 12,994,264 Claims incurred, net of reinsurance Claims paid - gross amount 717, ,964 - reinsurers share Financial report for the year 1999 (135,486) (199,591) 581, ,373 Change in the provision for claims - gross amount 69,615 64,204 - reinsurers share 11,572 (43,810) 81,187 20, , ,767 Change in other technical provisions, net of reinsurance Long term business provision, net of reinsurance - gross amount 14,902,871 8,304,127 - reinsurers share 10,823 8,218 14,913,694 8,312,345 Technical provision for linked liabilities 232,522-15,146,216 8,312,345 Bonuses and rebates, net of reinsurance 3 2,594,251 1,425,042 Net operating expenses 4 2,076,727 1,664,515 Investment expenses and charges 2 106, ,948 Total technical charges 20,586,522 11,960,617 Tax credit attributable to the long term business 7 1,748, ,345 Balance on the long term business technical account (page 6) 1,623,686 1,174,992 5

7 CONSOLIDATED PROFIT AND LOSS ACCOUNT Non-technical account Company Notes Balance on the long term business technical account (page 5) 1,623,686 1,174,992 1,623,686 1,174,992 Investment income 2 336, , , ,028 Investment expenses and charges 2 (11,291) (11,547) (11,291) (11,547) Other income 132,822 80, Other charges (93,478) (104,186) (38,216) (32,587) Profit on ordinary activities before tax 5 1,988,032 1,356,624 1,888,290 1,331,886 Tax on profit on ordinary activities 7 (85,405) (63,558) (52,728) (54,913) Profit for the financial year 1,902,627 1,293,066 1,835,562 1,276,973 Earnings per share c 27.8c 39.5c 27.5c Statement of total recognised gains Revaluation surplus, net of deferred taxation , , , ,754 Increment in value of in-force business 18 3,072,000 60,000 3,072,000 60,000 Profit for the financial year 1,902,627 1,293,066 1,835,562 1,276,973 Total recognised gains 5,451,618 1,548,681 5,438,912 1,507,727 6

8 CONSOLIDATED BALANCE SHEET ASSETS Company Notes Investments Land and buildings 11 2,227,270 1,942,785 2,227,270 1,942,785 Investments in group undertakings and participating interests , ,999 Other financial investments 13 48,816,018 30,028,370 48,412,559 29,849,199 51,043,538 31,971,155 50,993,388 31,991,983 Value of in-force business 14 7,050,000 3,978,000 7,050,000 3,978,000 Assets held to cover linked liabilities 225, ,114 - Reinsurers share of technical provisions Long term business provision 36,105 46,928 36,105 46,928 Claims outstanding 65,135 76,707 65,135 76, , , , ,635 Debtors Debtors arising out of direct insurance operations 90,817 53,170 90,817 53,170 Debtors arising out of reinsurance operations 12,948 4,838 12,948 4,838 Amounts owed by group undertakings 607, , ,036 1,029,932 Taxation recoverable 131,423 99, ,423 99, ,291 1,130,786 1,025,224 1,187,142 Other assets Tangible assets , , , ,321 Deferred taxation 19 1,574,188-1,520,529 - Cash at bank and in hand 1,104, ,277 1,095, ,113 Clients bank accounts 511, , ,628, ,088 3,052, ,434 Prepayments and accrued income Accrued interest and rent 1,173, ,457 1,162, ,758 Other prepayments and accrued income 18,003 18,667 14,100 17,750 1,191,323 1,010,124 1,176,343 1,006,508 Total assets 64,081,671 38,984,788 63,623,833 38,932,702 Financial report for the year

9 CONSOLIDATED BALANCE SHEET LIABILITIES Company Notes Capital and reserves Called up share capital 16 4,650,000 4,650,000 4,650,000 4,650,000 Revaluation reserve , , , ,526 Other reserves 18 4,400,000 1,976,951 4,400,000 1,976,951 Profit and loss account 2,849,450 1,397,872 2,766,292 1,381,779 Total shareholders funds 12,662,828 8,311,210 12,609,168 8,270,256 Technical provisions Long term business provision 45,999,583 28,728,329 45,999,583 28,728,329 Claims outstanding 243, , , ,115 46,243,313 28,902,444 46,243,313 28,902,444 Technical provisions for linked liabilities 232, ,522 - Provisions for other risks and charges Deferred taxation 19-65,296-65,296 Deposits received from reinsurers 15,252 14,925 15,252 14,925 Creditors Creditors arising out of direct insurance operations 384, , , ,641 Creditors arising out of reinsurance operations 69,079 73,978 69,079 73,978 Amounts owed to group undertakings 3,179 1, Amounts owed to shareholders 318, ,500 - Amounts owed to banks or credit institutions 20 3,000, ,016 3,000, ,016 Proposed dividends 450, , , ,500 Other creditors 397,577 7, ,622,500 1,451,569 4,221,744 1,442,135 Accruals and deferred income 305, , , ,646 Total liabilities 64,081,671 38,984,788 63,623,833 38,932,702 The financial statements on pages 5 to 31 were approved by the board on 12 April 2000 and were signed on its behalf by: J.F.X. Zahra Chairman M.C. Grech Deputy Chairman and C.E.O. 8

10 STATEMENT OF CHANGES IN EQUITY Notes Share Revaluation Other Profit and capital reserve reserves loss account Total Balance at 1 January ,650,000 90,772 1,597, ,550 6,995,029 Revaluation surplus, net of deferred taxation , ,064 Net gains not recognised in profit and loss account - 225, ,064 Amount released on realisation of investments 17 - (29,449) - - (29,449) Increment in value of in-force business ,000-60,000 Transfer to statutory reserve ,244 (319,244) - Dividends for (232,500) (232,500) Profit for the financial year ,293,066 1,293,066 Balance at 31 December ,650, ,387 1,976,951 1,397,872 8,311,210 Balance at 1 January ,650, ,387 1,976,951 1,397,872 8,311,210 Revaluation surplus, net of deferred taxation , ,368 Net gains not recognised in profit and loss account - 509, ,368 Amount released on realisation of investments 17 - (32,377) - - (32,377) Increment in value of in-force business ,072,000-3,072,000 Transfer from statutory reserve (648,951) 648,951 - Dividends for (1,100,000) (1,100,000) Profit for the financial year ,902,627 1,902,627 Balance at 31 December ,650, ,378 4,400,000 2,849,450 12,662,828 Financial report for the year

11 STATEMENT OF CHANGES IN EQUITY Company Notes Share Revaluation Other Profit and capital reserve reserves loss account Total Balance at 1 January ,650,000 90,772 1,597, ,550 6,995,029 Revaluation surplus, net of deferred taxation , ,203 Net gains not recognised in profit and loss account - 200, ,203 Amount released on realisation of investments 17 - (29,449) - - (29,449) Increment in value of in-force business ,000-60,000 Transfer to statutory reserve ,244 (319,244) - Dividends for (232,500) (232,500) Profit for the financial year ,276,973 1,276,973 Balance at 31 December ,650, ,526 1,976,951 1,381,779 8,270,256 Balance at 1 January ,650, ,526 1,976,951 1,381,779 8,270,256 Revaluation surplus, net of deferred taxation , ,595 Net gains not recognised in profit and loss account - 559, ,595 Amount released on realisation of investments 17 - (28,245) - - (28,245) Increment in value of in-force business ,072,000-3,072,000 Transfer from statutory reserve (648,951) 648,951 - Dividends for (1,100,000) (1,100,000) Profit for the financial year ,835,562 1,835,562 Balance at 31 December ,650, ,876 4,400,000 2,766,292 12,609,168 10

12 CONSOLIDATED CASH FLOW STATEMENT Company Notes Operating activities Cash generated from operations 21 13,142,265 8,520,885 12,568,751 8,440,505 Taxation (32,571) (37,469) (32,221) (37,112) Net cash from operating activities 13,109,694 8,483,416 12,536,530 8,403,393 Investing activities Purchase of investments (16,894,634) (14,014,593) (16,702,128) (13,860,283) Disposal of investments 5,240,377 6,272,771 5,224,627 6,272,771 Purchase of assets to cover linked liabilities (225,114) - (225,114) - Purchase of tangible fixed assets (213,047) (206,778) (212,950) (206,455) Net cash used in investing activities (12,092,418) (7,948,600) (11,915,565) (7,793,967) Financing activities Bank loan 3,000,000-3,000,000 - Dividends paid (232,500) (232,500) (232,500) (232,500) Net cash from/(used in) financing activities 2,767,500 (232,500) 2,767,500 (232,500) Movement in cash and cash equivalents 3,784, ,316 3,388, ,926 Cash and cash equivalents at beginning of year 2,058,706 1,756,390 1,933,317 1,556,391 Cash and cash equivalents at end of year 22 5,843,482 2,058,706 5,321,782 1,933,317 Financial report for the year

13 ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below. 1. Basis of preparation These financial statements are prepared in accordance with International Accounting Standards and comply with the Maltese Insurance Business Act, 1998 and the Maltese Companies Act, The financial statements are prepared under the historical cost convention, as modified to include the revaluation of investments and the value of in-force business. 2. Form and content of the financial statements The Maltese Insurance Business Act, 1998 governs the form and content of the financial statements. Pending the formal issue of regulations in terms of this Act, the company has for the purpose of this year s financial statements, followed directives issued to it by the Malta Financial Services Centre, the competent regulatory authority. The directives issued to the company by the Centre, which are based on the draft regulations, have resulted in changes to the form and presentation of the financial statements. Comparative figures have been restated and their presentation revised in order to comply with the directives. 3. Basis of consolidation The consolidated financial statements include the results, cash flows, statements of changes in equity and balance sheets of the company and its subsidiary made up to 31 December. Intra-group transactions are eliminated on consolidation and all revenue and expenditure figures relate to external transactions only. 4. Premiums Premiums, including reinsurance premiums, comprise the amounts receivable and payable for the financial year. Unit linked premiums are accounted for when units are created. 12

14 ACCOUNTING POLICIES 5. Claims Maturity claims are charged against revenue when due for payment. Surrenders are accounted for when paid or, if earlier, on the date when the policy ceases to be included within the calculation of the long term business provision and/or the technical provision for linked liabilities. Death claims and all other claims are accounted for when notified. Claims payable include related internal and external claims handling costs. Reinsurance recoveries are accounted for in the same period as the related claim. 6. Bonuses Bonuses charged to the long term business technical account in a given year comprise: (a) new reversionary bonuses declared in respect of that year, which are provided within the calculation of the long term business provision; (b) terminal bonuses paid out to policyholders on maturity and included within claims paid. 7. Investment return Investment return comprises investment income including realised and unrealised investment gains and losses, net of investment expenses, charges and interest. Dividends are recorded on the date when the shareholder s right to receive payment is established. Interest, rents and expenses are accounted for on an accruals basis. Realised gains and losses on investments are calculated as the difference between net sales proceeds and the original purchase price. Unrealised gains and losses on investments represent the difference between the valuation at the balance sheet date and their purchase price or if they have been previously valued, their valuation at the last balance sheet date. The investment return is apportioned between the technical and non-technical profit and loss accounts on a basis which takes into account that technical provisions are fully backed by investments and that the value of in-force business, fixed assets and working capital are financed in their entirety from shareholders' funds. Financial report for the year

15 ACCOUNTING POLICIES 8. Foreign currencies Transactions in foreign currencies have been converted into Maltese lira at the rates of exchange ruling on the date of the transaction. Assets and liabilities denominated in foreign currencies have been translated into Maltese lira at the rates of exchange ruling at the balance sheet date. All resulting differences are taken to the profit and loss account. 9. Investments Investments in freehold properties are stated in the balance sheet at cost or are valued at open market value as determined by independent professional advisers every five years. Net unrealised appreciations arising on revaluations and attributable to the policyholders are credited to the technical profit and loss account. Unrealised gains relating to the non-technical profit and loss account are credited to a revaluation reserve and, to the extent that this is insufficient to cover any net deficits, are charged to the non-technical profit and loss account. Investments in quoted shares and securities and units in unit trusts are stated at market value. Loans and unquoted shares are stated at a directors' valuation. Net appreciations and deficits arising from movements in the market value are treated in the same manner as for investment properties. 10. Value of in-force business The value of in-force business is determined by the directors, based on the advice of the company's approved actuary. The valuation represents the discounted value of projected future transfers to shareholders from policies in force at the year end, after making provision for taxation. In determining this valuation, assumptions relating to future mortality, persistence and levels of expenses are based on experience of the type of business concerned. Gross investment returns assumed vary depending upon the mix of investments held by the company and expected market conditions. Annual movements in the in-force business valuation are credited or debited to reserves. 11. Long term business provision The long term business provision is determined by the company s approved actuary following his annual investigation of the financial condition of the company s long term business as required under the Insurance Business Act, The provision is calculated in accordance with the relevant legislation governing the determination of liabilities for the purposes of statutory solvency. The calculation uses a prospective valuation method and makes explicit provision for vested reversionary bonuses. Provision is also made, implicitly or explicitly, for future reversionary bonuses. 14

16 ACCOUNTING POLICIES 12. Tangible assets Tangible fixed assets comprising furniture, fittings and equipment and motor vehicles are stated at cost less depreciation. Depreciation is calculated so as to write off the cost on a straight line basis over the expected useful economic lives of the assets concerned. Assets not yet in use are not depreciated. The principal annual rates used for this purpose are:- % Furniture, fittings and equipment Motor vehicles 20 No depreciation is charged in respect of freehold properties held as property investments. 13. Deferred taxation Deferred income tax is provided using the liability method for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax arising on unrealised capital gains attributable to shareholders is debited to the revaluation reserve whereas deferred tax arising on unrealised gains attributable to policyholders is debited to the technical profit and loss account. 14. Debtors Debtors are carried at anticipated realisable value. An estimate is made for doubtful debtors based on a review of all outstanding amounts at the year end. Bad debts are written off during the year in which they are identified. 15. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, clients bank accounts, deposits held at call with banks and time deposits maturing within three months. 16. Borrowing costs Interest costs are charged against income without restriction. No borrowing costs have been capitalised. Financial report for the year

17 NOTES TO THE FINANCIAL STATEMENTS 1. Segmental analysis In the opinion of the directors, the operates in a single business segment being that of long term insurance business. (i) Gross premiums written Gross premium income is made up of: and Company Direct insurance 13,226,723 9,406,636 Reinsurance inwards 239, ,549 Gross premiums written 13,466,063 9,645,185 and Company Gross direct premiums written Periodic premiums Single premiums Non-participating 780, , Participating 8,062,289 6,721,904 4,146,304 1,966,870 Linked 28, ,214-8,872,205 7,439,766 4,354,518 1,966,870 Gross premiums written by way of direct business of insurance relate to individual business. All long term contracts of insurance are concluded in or from Malta. (ii) Reinsurance balance The reinsurance balance, which represents the aggregate of all items relating to reinsurance outwards, amounted to a charge of 146,736 to the long term business technical account for the year ended 31 December 1999 (1998: a credit of 13,240). 16

18 NOTES TO THE FINANCIAL STATEMENTS 2. Investment return Company Investment income Income from land and buildings 108,966 82, ,966 82,944 Income from other investments 1,907,232 1,475,744 1,891,422 1,459,891 Gains on the realisation of investments 980, , , ,013 2,996,596 1,975,701 2,974,414 1,959,848 Unrealised gains on investments 5,316,122 2,146,385 5,420,008 2,121,524 Investment expenses and charges Investment management expenses 91,234 74,422 91,234 74,422 Interest payable 26,356 82,073 26,356 82,073 Total investment expenses and charges 117, , , ,495 Total investment return 8,195,128 3,965,591 8,276,832 3,924,877 Apportioned as follows: Technical profit and loss account 7,332,865 3,582,985 7,332,865 3,582,985 Non-technical profit and loss account 325, , , ,481 Revaluation reserve 537, , , ,411 8,195,128 3,965,591 8,276,832 3,924, Bonuses and rebates, net of reinsurance The following amounts have been included in the long term business technical account in respect of policyholder bonuses: & Company Reversionary bonuses declared in the year, included in the long term business provision 2,594,251 1,425,042 Financial report for the year

19 NOTES TO THE FINANCIAL STATEMENTS 4. Net operating expenses and Company Acquisition costs 1,539,370 1,240,590 Administrative expenses 723, ,600 Reinsurance commissions and profit participation (186,029) (158,675) 2,076,727 1,664,515 Total commissions for direct business accounted for in the financial period amounted to 1,105,454 (1998: 915,619). 5. Profit on ordinary activities before tax The profit on ordinary activities before tax is stated after charging/(crediting): Company Staff costs (note 6) 275, , , ,391 Auditors remuneration 5,000 5,000 3,500 3,500 Actuarial fees 39,679 29,151 39,679 29,151 Depreciation (note 15) 62,362 43,052 62,282 42,994 Professional indemnity insurance 9,268 8,817 7,961 7,646 Exchange differences (94,350) 49,848 (86,942) 52, Staff costs Total employment costs: Company Salaries 257, , , ,931 Social security costs 17,900 15,237 17,197 14, , , , ,391 18

20 NOTES TO THE FINANCIAL STATEMENTS 6. Staff costs - continued Average number of persons employed by the company during the year: Company Average number of employees In 1998 salaries included costs charged by a third party in respect of management services supplied to the company. The above employee information for the company also includes the cost of employees that are recharged to its subsidiary by way of a management charge. 7. Taxation Company relief - 15,997 31,970 24,642 Deferred taxation 1,639,484 80,133 1,585,825 80,133 Current taxation (707) ,638,777 96,130 1,617, ,775 Apportioned as follows: Technical profit and loss account 1,748, ,345 1,748, ,345 Non-technical profit and loss account (85,405) (63,558) (52,728) (54,913) Revaluation reserve (24,614) 18,343 (78,273) 18,343 1,638,777 96,130 1,617, ,775 In 1998, the company incurred a tax loss of 70,405 which was computed in line with fiscal legislation applicable to long term business of insurance up to the financial period ending 31 December This brought the company to charge on the basis of investment income earned less commissions and expenses incurred. Tax on profit for the year ended 31 December 1999 differs from the theoretical amount that would arise using the basic tax rate as follows: Company Profit before tax 239, ,494 Tax on ordinary profit at 35% 83,733 48,823 Tax effect of: Income not subject to tax (1,773,070) (1,770,837) Other differences 25,946 25,946 Net tax credited to the profit and loss account (1,663,391) (1,696,068) Financial report for the year

21 NOTES TO THE FINANCIAL STATEMENTS 8. Directors emoluments Company Remuneration 15,000-15,000 - Fees 22,500 20,833 18,500 20,833 37,500 20,833 33,500 20, Earnings per share Earnings per share is based on the profit attributable to the shareholders of Middle Sea Valletta Life Assurance Company Limited divided by the weighted average number of ordinary shares in issue during the year. Company Net profit attributable to shareholders 1,902,627 1,293,066 1,835,562 1,276,973 Weighted average number of ordinary shares in issue 4,650,000 4,650,000 4,650,000 4,650,000 Earnings per share 40.9c 27.8c 39.5c 27.5c 37, Dividends & Company Interim dividend (gross and net) 650,000 - Final dividend proposed (gross and net) 450, ,500 1,100, ,500 Dividends per share: Interim 14c - Proposed 10c 5c 24c 5c 20

22 NOTES TO THE FINANCIAL STATEMENTS 10. Dividends - continued At the company s Annual General Meeting held on 12 April 2000 the shareholders resolved that the interim dividend of 650,000 shall be applied to an equivalent increase in the company s issued share capital. For this purpose they authorised the Board to issue 650,000 new shares with a nominal value of 1 each to be allotted pro-rata to existing shareholders and to be paid up from the interim dividend due to them. 11. Land and buildings and Company Freehold properties Year ended 31 December 1999 Opening net book amount 1,942,785 Additions 284,485 Closing net book amount 2,227,270 At 31 December 1999 Cost 1,887,601 Unrealised gains 339,669 Net book amount 2,227,270 Year ended 31 December 1998 Opening net book amount 1,534,750 Additions 408,035 Closing net book amount 1,942,785 At 31 December 1998 Cost 1,603,116 Unrealised gains 339,669 Net book amount 1,942,785 The freehold properties were revalued at 31 December 1997 by independent professional valuers on the basis of an open market valuation. Financial report for the year

23 NOTES TO THE FINANCIAL STATEMENTS 12. Investments in group undertakings and participating interests Company Shares in Participating group Participating interests undertakings interests Total Year ended 31 December 1999 Opening net book amount - 199, ,999 Additions Revaluation surplus arising during the year - 153, ,310 Closing net book amount , ,559 At 31 December 1999 Cost , ,249 Unrealised gains - 153, , , ,559 At 31 December 1998 Opening and closing net book amount (cost) - 199, ,999 undertakings at 31 December 1999 are shown below: Registered Class of Percentage undertakings office shares held of shares held 1999 & 1998 Growth Investments Limited Middle Sea House Ordinary shares 100% Floriana VLT 16 Associated undertakings at 31 December 1999 are shown below: Registered Class of Percentage Associated undertakings office shares held of shares held Churchwharf Properties Middle Sea House Ordinary shares 50% Limited Floriana VLT 16 22

24 23 NOTES TO THE FINANCIAL STATEMENTS 13. Other financial investments Quoted Quoted debt shares, other securities variable yield Unquoted and other Deposits securities and shares fixed with banks Long term units in unit and income or credit reinsurance Other trusts securities securities institutions loan loans Total Year ended 31 December 1999 Opening net book amount 4,768, ,253 19,392,665 2,511,220 2,307, ,298 30,028,370 Additions 9,045, ,706 4,613,109 8,795,568 37, ,452 22,895,762 Disposals (1,256,773) - (2,969,139) (4,580,018) (285,880) - (9,091,810) Revaluation surplus arising during the year 4,359, , , ,316,122 Amount released on realisation of investments (222,001) - (110,425) (332,426) Closing net book amount 16,694,625 1,346,793 21,521,064 6,726,770 2,059, ,750 48,816,018 At 31 December 1999 Cost 11,981, ,943 19,230,864 6,726,770 2,059, ,750 41,415,811 Unrealised gains 4,713, ,850 2,290, ,400,207 Net book amount 16,694,625 1,346,793 21,521,064 6,726,770 2,059, ,750 48,816,018 Year ended 31 December 1998 Opening net book amount 3,472, ,877 11,538, ,409 2,168, ,779 18,860,293 Additions 3,444, ,056 9,798,861 5,420, , ,382 19,027,369 Disposals (2,177,190) - (3,620,705) (3,710,000) - (57,863) (9,565,758) Revaluation surplus arising during the year 446,298 1,320 1,698, ,146,385 Amount released on realisation of investments (417,305) - (22,614) (439,919) Closing net book amount 4,768, ,253 19,392,665 2,511,220 2,307, ,298 30,028,370 At 31 December 1998 Cost 4,192, ,237 17,586,894 2,511,220 2,307, ,298 27,611,859 Unrealised gains 575,724 35,016 1,805, ,416,511 Net book amount 4,768, ,253 19,392,665 2,511,220 2,307, ,298 30,028,370

25 NOTES TO THE FINANCIAL STATEMENTS 13. Other financial investments - continued Quoted shares, other Quoted debt variable yield Unquoted securities Deposits Company securities and shares and fixed with banks Long term units in unit and income or credit reinsurance Other trusts securities securities institutions loan loans Total Year ended 31 December 1999 Opening net book amount 4,589, ,253 19,392,665 2,511,220 2,307, ,298 29,849,199 Additions 8,853, ,706 4,613,109 8,795,568 37, ,452 22,703,256 Disposals (1,243,263) - (2,969,139) (4,580,018) (285,880) - (9,078,300) Revaluation surplus arising during the year 4,310, , , ,266,698 Amount released on realisation of investments (217,869) - (110,425) (328,294) Closing net book amount 16,291,166 1,346,793 21,521,064 6,726,770 2,059, ,750 48,412,559 At 31 December 1999 Cost 11,648, ,943 19,230,864 6,726,770 2,059, ,750 41,082,505 Unrealised gains 4,643, ,850 2,290, ,330,054 Net book amount 16,291,166 1,346,793 21,521,064 6,726,770 2,059, ,750 48,412,559 Year ended 31 December 1998 Opening net book amount 3,472, ,877 11,538, ,409 2,168, ,779 18,860,293 Additions 3,289, ,056 9,798,861 5,420, , ,382 18,873,059 Disposals (2,177,190) - (3,620,705) (3,710,000) - (57,863) (9,565,758) Revaluation surplus arising during the year 421,437 1,320 1,698, ,121,524 Amount released on realisation of investments (417,305) - (22,614) (439,919) Closing net book amount 4,589, ,253 19,392,665 2,511,220 2,307, ,298 29,849,199 At 31 December 1998 Cost 4,038, ,237 17,586,894 2,511,220 2,307, ,298 27,457,549 Unrealised gains 550,863 35,016 1,805, ,391,650 Net book amount 4,589, ,253 19,392,665 2,511,220 2,307, ,298 29,849,199 24

26 NOTES TO THE FINANCIAL STATEMENTS 13. Other financial investments - continued The long term reinsurance loan arose on the acquisition of a life reinsurance portfolio, bears interest at 8% per annum and is not subject to fixed terms of repayment. Loans secured on policies, included in other loans, amounted to 467,750 as at 31 December 1999 (1998: 281,299). 14. Value of in-force business & Company Net book amount at 1 January ,978,000 Increment in value of in-force business, credited to reserves (note 18) 3,072,000 At 31 December ,050, Tangible assets Furniture, fittings & Motor equipment vehicles Total Year ended 31 December 1999 Opening net book amount 269,317 17, ,586 Additions 213, ,047 Depreciation charge (55,807) (6,555) (62,362) Closing net book amount 426,557 10, ,271 At 31 December 1999 Cost 593,136 32, ,911 Accumulated depreciation (166,579) (22,061) (188,640) Net book amount 426,557 10, ,271 At 31 December 1998 Cost 380,089 32, ,864 Accumulated depreciation (110,772) (15,506) (126,278) Net book amount 269,317 17, ,586 Financial report for the year

27 NOTES TO THE FINANCIAL STATEMENTS 15. Tangible assets - continued Company Furniture, fittings & Motor equipment vehicles Total Year ended 31 December 1999 Opening net book amount 269,052 17, ,321 Additions 212, ,950 Depreciation charge (55,727) (6,555) (62,282) Closing net book amount 426,275 10, ,989 At 31 December 1999 Cost 592,716 32, ,491 Accumulated depreciation (166,441) (22,061) (188,502) Net book amount 426,275 10, ,989 At 31 December 1998 Cost 379,766 32, ,541 Accumulated depreciation (110,714) (15,506) (126,220) Net book amount 269,052 17, ,321 Included in fixed assets is an amount of 251,950 (1998: 164,832) that represents payments in advance in respect of a new computer system, which has not yet been brought into use. 16. Share capital & Company Authorised 10,000,000 ordinary shares of 1 each 10,000,000 10,000,000 Issued and fully paid 4,650,000 ordinary shares of 1 each 4,650,000 4,650,000 26

28 NOTES TO THE FINANCIAL STATEMENTS 17. Revaluation reserve Company Balance at 1 January before taxation 305, , , ,751 Revaluation surplus arising during the year 537, , , ,535 Amount released on realisation of investments (35,656) (45,124) (31,524) (45,124) Balance at 31 December before taxation 806, , , ,162 Deferred taxation (43,250) (18,636) (96,909) (18,636) Balance at 31 December 763, , , ,526 The revaluation reserve is non-distributable. 18. Other reserves & Company Value of Statutory in-force reserve business Balance at 1 January 648,951 1,328,000 1,976,951 1,597,707 25% of net profit for the year in terms of Section 8(i) of the Insurance Business Act, ,244 Transfer to profit and loss account (648,951) - (648,951) - Increment in value of in-force business (see note 14) - 3,072,000 3,072,000 60,000 Balance at 31 December - 4,400,000 4,400,000 1,976,951 The statutory reserve was previously maintained in terms of the Insurance Business Act,1981. Its use was discontinued by the Insurance Business Act, 1998 and the statutory reserve has been transferred to retained earnings. Financial report for the year

29 NOTES TO THE FINANCIAL STATEMENTS 19. Deferred taxation Company Balance at 1 January (65,296) (145,429) (65,296) (145,429) Tax effect of revaluation debited/ (credited) to the revaluation reserve (24,614) 18,343 (78,273) 18,343 Credit to profit and loss account 1,664,098 61,790 1,664,098 61,790 Balance at 31 December 1,574,188 (65,296) 1,520,529 (65,296) Deferred taxation is calculated on all temporary differences under the liability method using a principal tax rate of 35% (1998: 35%). Deferred taxation at the year end comprises: Company Temporary differences attributable to unrealised capital gains or losses (450,409) (181,681) (504,068) (181,681) Temporary differences attributable to fixed assets (27,017) (16,861) (27,017) (16,861) Temporary differences attributable to tax losses carried forward 2,051, ,246 2,051, ,246 Balance at 31 December 1,574,188 (65,296) 1,520,529 (65,296) The deferred tax asset was recognised on the basis of expectation of future profit. 20. Amounts owed to banks or credit institutions &Company Short term falling due within one year Bank overdraft - 937,016 Long term falling due after more than one year Bank loan 3,000,000 - Total borrowings 3,000, ,016 28

30 NOTES TO THE FINANCIAL STATEMENTS 20. Amounts owed to banks or credit institutions - continued The bank borrowings are secured by a special hypothec on investments. & Company Total borrowings: At floating rates 3,000, ,016 Weighted average effective interest rates: Bank overdraft 7% 7% Bank loan 5.31% - Maturity of long term borrowings: Between 2 and 5 years 3,000, Note to the cash flow statement Reconciliation of profit before tax to cash generated from operations: Company Profit before tax 239,236 1,215, ,494 1,190,541 Adjustments for: Depreciation 62,362 43,052 62,282 42,994 Unrealised gains on investments (4,778,861) (1,969,113) (4,778,861) (1,969,113) Realised gains on disposal of investments (647,972) 22,906 (645,732) 22,906 Increase in long term business provision 17,740,467 9,737,387 17,740,467 9,737,387 Debtors, excluding group relief receivable (192,340) (533,201) (275,226) (577,653) Creditors, including claims outstanding 719,373 4, ,327 (6,557) Cash generated from operations 13,142,265 8,520,885 12,568,751 8,440,505 Financial report for the year

31 NOTES TO THE FINANCIAL STATEMENTS 22. Cash and cash equivalents For the purposes of the cash flow statement, the year end cash and cash equivalents comprise the following: Company Cash at bank and in hand 1,104, ,277 1,095, ,113 Clients bank accounts 511, , Time deposits maturing within three months 4,226,776 2,511,220 4,226,776 2,511,220 Bank overdraft - (937,016) - (937,016) 5,843,482 2,058,706 5,321,782 1,933,317 The use of clients bank accounts is restricted in terms of the Investment Services Act, Financial instruments Credit risk Financial assets which potentially subject the company to concentrations of credit risk consist principally of investments, cash at bank and debtors. The majority of the company s investments are quoted on reputable stock exchanges and do not expose the company to significant credit risk. Credit risk with respect to debts is limited due to the large number of customers comprising the company s direct insurance debtor base and due to the fact that other debtors are due from reputable institutions or from group undertakings. The company s cash is placed with quality financial institutions. Fair values At 31 December 1999 and 1998 the carrying amounts of investments, cash at bank, debtors, creditors, accrued expenses and short term borrowings approximated their fair values. The fair value of long term borrowings is not materially different from their carrying amount. 30

32 NOTES TO THE FINANCIAL STATEMENTS 24. Capital commitments Commitments for capital expenditure not provided for in these financial statements are as follows: & Company Authorised and contracted for 94, ,059 Authorised but not contracted 111,700 54, Contingent liabilities The company has issued a guarantee of 124,810 (1998: 124,810) to a third party in favour of its subsidiary, Growth Investments Limited. 26. Related party transactions The company's shareholders are Middle Sea Insurance p.l.c., Bank of Valletta p.l.c. and Munchener Ruckversicherungs - Gesellschaft of Germany. Approximately one half (1998: one third) of the company's expenditure comprises acquisition costs paid to Bank of Valletta p.l.c. and administrative costs shared with the Middle Sea. The company's major reinsurer is Munchener Ruckversicherungs - Gesellschaft. All transactions with related parties are carried out at arms length. 27. Statutory information Middle Sea Valletta Life Assurance Company Limited is a limited liability company and is incorporated in Malta. 28. Change in format of the financial statements The format of the financial statements has been changed from that presented in previous years following the introduction of the new Insurance Business Act, 1998 and developments in generally accepted accounting practices. The current format now complies with the formats allowed by the Maltese Insurance Business Act, 1998, as outlined in the draft regulations to the said Act. Financial report for the year